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Collateral abstraction for trustless leverage in DeFi

Introduction


In the current DeFi landscape, locking an asset often means locking its potential. Capital ends up idle and fragmented as users deposit assets in one protocol but can’t reuse them elsewhere without losing exposure or paying bridging and swap fees. Diffuse Collateral changes this by turning any asset into reusable capital—lock once, and access leverage up to 5x–10x trustlessly & secured by automatic liquidations.

Collateral abstraction and Diffuse Collateral


Collateral abstraction is a model introduced by Symbiotic for turning assets into a collateral portable across chains, unlocking liquidity locked on other chains. In our previous posts, we covered details on how it works, the tech behind our implementation, Diffuse Collateral, and the cross-chain possibilities it opens.


But collateral abstraction isn’t just about transferring assets, it’s about maximizing their utility. This is how Diffuse Collateral transforms locked assets into programmable capital:


  • Deposit ERC-20 tokens (USDT, ETH, USDe, or other)

  • Receive zkTLS-based synthetic tokens representing your locked collateral

  • Borrow against it, redeposit, and loop for compounded exposure

  • Automatic liquidations of positions enforced by smart contracts protects the funds if collateral value drops due to volatility or depeg.


Unlike wrapped tokens or bridges, Diffuse Collateral is non-custodial and optimized for composability.


Why this matters


  1. Capital efficiency: unlock 5x–10x leverage without scattering assets across protocols

  2. Profit potential: amplify yields by leveraging strategies, like looping stablecoins in lending markets

  3. Composability: use collateral in one protocol while farming, lending, or trading in another

  4. Trust minimization: no reliance on trusted oracles/bridges or wrapped tokens. Diffuse Collateral relies on a zkTLS-based prover and zkTLS-secured data feeds to fetch real-time asset prices used for calculating LTV ratios and triggering liquidations.


Diffuse Collateral provides a trustless leverage engine that fits naturally into the modular DeFi stack.


How it works


Single-chain example: leverage on stablecoins


Let’s walk through how this works on a single chain using USDe:


  1. Deposit 1.0 USDe → Receive 1.0 eUSDe

  2. Borrow 0.9 USDe (at 90% LTV) against your collateral, convert it into 0.9 eUSDe, and redeposit. Total collateral now: 1.9 eUSDe

  3. Repeat the loop (step 2):

    • Borrow 0.81 USDe → 2.71 eUSDe collateral

    • Borrow 0.729 USDe → 3.439 eUSDe collateral

    • Borrow 0.6561 USDe → ~4.095x total exposure.


Actual LTV and maximum leverage depend on the asset and its risk parameters.


Multi-chain: ETH on mainnet as collateral for other chains


  1. Deposit ETH on Ethereum via Diffuse Collateral

  2. Receive zkTLS-based synthetic ETH on any supported chain like Optimism

  3. Use these synthetic tokens as collateral or active capital on that chain without bridging


See our article on First look at Diffuse Collateral for more info on synthetic assets and the tech behind it. We’ll cover the liquidation aspects in more details in the next articles.


What’s next


Diffuse Collateral redefines leverage in DeFi—one deposit, multiplied utility, limitless strategies, and we’re working on improving it right now, including convenient UX and documentation.


Ready to amplify your capital? Stay tuned for the next phase:


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